water scarcity and irrigation efficiency in egypt

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Modelling Water Quality 1 Paper prepared for the 17 th Annual Conference on Global Economic Analysis “New Challenges in Food Policy, Trade and Economic Vulnerability”, June 18-20, 2014, Dakar, Senegal Water Scarcity and Irrigation Efficiency in Egypt Emanuele Ferrari, Scott McDonald, Rehab Osman 1 WORK IN PROGRESS PLEASE DO NOT QUOTE WITHOUT PRIOR AGREEMENT WITH THE AUTHORS Disclaimer: the views expressed are purely those of the authors and may not in any circumstances be regarded as stating an official position of the European Commission. Corresponding author: Rehab Osman Oxford Brookes University Wheatley Campus, Oxford, OX33 1HX Email: [email protected] Tel: +44 (0)1865 485830 1 Emanuele Ferrari is Researcher in the European Commission, Joint Research Centre (JRC), Institute for Prospective Technological Studies (JRC-IPTS). Scott McDonald and Rehab Osman are, respectively, Professor and Postdoctoral Research Fellow of Economics in the Department of Accounting Finance and Economics, Oxford Brookes University.

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Page 1: Water Scarcity and Irrigation Efficiency in Egypt

Modelling Water Quality

1

Paper prepared for the 17th Annual Conference on Global Economic Analysis “New

Challenges in Food Policy, Trade and Economic Vulnerability”, June 18-20, 2014, Dakar,

Senegal

Water Scarcity and Irrigation Efficiency in Egypt Emanuele Ferrari, Scott McDonald, Rehab Osman1

WORK IN PROGRESS

PLEASE DO NOT QUOTE WITHOUT PRIOR AGREEMENT WITH THE AUTHORS

Disclaimer: the views expressed are purely those of the authors and may not in any circumstances be regarded as stating an official position of the European Commission.

Corresponding author: Rehab Osman Oxford Brookes University Wheatley Campus, Oxford, OX33 1HX Email: [email protected] Tel: +44 (0)1865 485830

1 Emanuele Ferrari is Researcher in the European Commission, Joint Research Centre (JRC), Institute for Prospective Technological Studies (JRC-IPTS). Scott McDonald and Rehab Osman are, respectively, Professor and Postdoctoral Research Fellow of Economics in the Department of Accounting Finance and Economics, Oxford Brookes University.

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Water Scarcity and Irrigation Efficiency in Egypt Abstract ..................................................................................................................................... 3

Introduction .............................................................................................................................. 3

Water Scarcity and Water Quality in Egypt ........................................................................... 4

Irrigation Water Map ............................................................................................................... 5

Conventional Water Resources .......................................................................................... 6

Non-conventional Water Resources .................................................................................. 8

Irrigation Water Quality and Land Productivity .................................................................... 9

Updated SAM for the Egyptian Economy ............................................................................. 10

Single Country STAGE CGE Model ......................................................................................... 12

Production Specification ................................................................................................... 12

Model Closure Rules .......................................................................................................... 15

Simulation Scenarios .............................................................................................................. 15

Simulation Results .................................................................................................................. 17

Macro-economic Impacts .................................................................................................. 17

Sector-specific Impacts ..................................................................................................... 18

Water and Irrigated Land Prices ...................................................................................... 20

Conclusions and Discussion .................................................................................................. 22

Table 1: Available and Potential Irrigation Water Resources .............................................. 6

Table 2: Groundwater Usage ................................................................................................... 9

Table 3: Recycled Drainage Water in the Nile Delta 2000/2001 ......................................... 9

Table 4: Potential Yield Reduction from Saline Water ........................................................ 10

Table 5: SAM Accounts, Egypt 2008/2009........................................................................... 11

Table 6: Macroeconomic Indicators (Real percentage change) ......................................... 17

Table 7: Commodity Exports (Percentage change) ............................................................. 20

Table 8: Income Factors (Percentage change) ..................................................................... 21

Table 9: Domestic Agricultural Production (Percentage change) ...................................... 26

Table 10: Factor Intensity by Agricultural Activity (Percent) ............................................ 27

Table 11: Factor Shares in Agricultural Value Added (Percent) ........................................ 28

Figure 1: Irrigated Land Use .................................................................................................... 8

Figure 2: Agricultural Production Flows in STAGE-WL CGE Model ................................... 14

Figure 3: Domestic Agricultural Production (Percentage change) .................................... 19

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Abstract

Examining the potential implications of changes in irrigation

efficiency associated with improvements in water quality is crucial for

the Egyptian economy. This study provides quantitative assessments

for the impact of quality enhancements of different types of irrigation

water under water scarcity conditions using a single country CGE

(STAGE) model that is calibrated using a new SAM for Egypt. The SAM

segments the agricultural accounts by season and by irrigation

technology; Nile water-dependent and groundwater-dependent

agricultural activities. The simulation results show that Egypt should

be able to manage the potential reductions in the supply for Nile

water with more efficient irrigation practice that secures higher

productivity for Nile water, groundwater and irrigated land. The

results however suggests more ambitious plan to boost irrigation

efficiency for summer rice in order to overweight any potential

shrinkages in its output and exports. Furthermore, the findings show

that even doubling all non-conventional water resources is not

sufficient to compensate the potential adverse impacts of Nile water

losses. This highlights the critical importance of irrigation efficiency

for the Egyptian economy.

Introduction

Water scarcity is problematic in Egypt. Water availability per capita rate is already one

of the lowest in the world. This is suggested for further declines. A major challenge is to

close the rapidly increasing gap between the limited water resources and the escalating

demand for water from various economic sectors.

Nile is the main source of freshwater in Egypt, with a share of more than 95%. The

storage reservoir of Nasser Lake provides 56 billion m3 (hereinafter referred to BCM)

per annum. The issue of Egypt’s share of Nile waters is under difficult negotiations. In

April 2011, Ethiopia has launched the construction of the Grand Ethiopian Renaissance

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Dam, GERD. With water storage capacity of 63 BCM and energy generation capacity of

6,000 MW, the GERD is anticipated to be the biggest hydroelectric power plant and one

of the largest water reservoirs in the continent. Egyptian experts give indications of 20-

34% water reduction when the filling period overcuts the drought period. This is

estimated to be 11-19 BCM on average over the Dam’s filling period.

Shortage of fresh water resources and/or poor quality of these resources would

have outstanding impacts on agricultural activities and the whole economy. Agriculture

plays a significant role in the Egyptian economy and it is the main consumer for fresh

water resources. Agriculture’s share of GDP has been the largest among individual

sectors, contributing about 20% of GDP. It absorbs around 34% of employment. The

agricultural exports account for 13% of total exports. Agriculture consumes about 85%

of the annual total water resource. More than 70% of the cultivated area depends on

low-efficiency surface irrigation systems, which cause high water losses, a decline in

land productivity, waterlogging and salinity problems. Moreover, unsustainable

agricultural practices and improper irrigation management affect the quality of the

country’s water resources. Reductions in irrigation water quality have, in their turn,

harmful effects on irrigated soils and crops.

Water Scarcity and Water Quality in Egypt

Water issue in Egypt is twofold - the increasing gap between demand and supply and

the deterioration of water quality. As Claudia Bürkin explains, Egypt faces two main

challenges: water loss and poor water quality.2 “Egypt loses about 50% of its freshwater

through poor maintenance of supplies and distribution problems, and the water is

polluted,” she says, stressing that a significant number of diseases are water borne.

Polluted water also affects the ecosystems’ balance, the soil quality, and seeps into the

aquifers. “Egypt needs to set up strong standards for water quality and control the

drainage nutrients, pesticides and waste found in the water.” (Sarant, 2013)

It is worth noting here that water loss and deteriorating water quality are

interlinked. Water available for specific purposes is constrained by its quality, on one

2 Claudia Bürkin is the Water Sector Coordinator for the German Development Cooperation and Senior Programme Manager at KfW Development Bank.

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hand, and increasing demand for limited water resources might cause degradation in

quality. Growing population and slum areas, industrial activities, urbanization, pollution

and climate changes adversely affect water quality. Furthermore, higher water quality

implies less risk of water shortage at a given level of output. Besides, higher water

quality leads to higher marginal productivity of other agricultural factors, land in

particular.

It is thus crucial for Egypt to form comprehensive strategy that aims at enhancing

water supply from both conventional and non-conventional resources as well as

preserving water quality. There is an urgent need to gain more insights into water

quality and its implication for agricultural productivity.

“… one of the main components of the agricultural development strategy is to

achieve a gradual improvement of the efficiency of irrigation systems to reach 80 per

cent in an area of 8 m feddans, and to reduce the areas planted to rice from 1.673 m

feddan (2007) to 1.3 m feddan by 2030 in order to save an estimated 12 400 million

cubic meters of water”, (FAO, 2013, p. 13).3

The study aims at examining the potential implications of changes in irrigation

efficiency associated with improvements in water and land quality. It provides

quantitative assessments for the impact of quality enhancements of different types of

irrigation water under water scarcity conditions. The simulation results inform answers

for several research questions. How significant are potential effects of Nile water

reductions on the agricultural sector and the whole economy likely to be? What are the

sufficient enhancements in irrigation efficiency required to compensate the potential

losses of Nile water? Is investing in securing non-conventional water resources,

actually, a viable alternative strategy to the irrigation efficiency strategy?

Irrigation Water Map

This section portrays the irrigation water state in Egypt.

3 Feddan is a non-metric measurement unit of land area used in Egypt, inter alia. A feddan is equivalent to 1.037 acres, 0.420 hectares or 4,220 m2.

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Table 1 portrays different sources for irrigation water whereas Figure 1 locates land

irrigated by these water sources.

Conventional Water Resources

1. Nile Water

Nile is the main source of freshwater in Egypt, with a share of more than 95%. Nile

water accounts for virtually 80% of irrigation requirements. This water source mainly

serves irrigated land in Nile Valley and Nile Delta, which together constitute 85% of

total irrigated land. In 2008/09, total water resources reach 74.2 BCM and total

irrigated land was 8.7 million feddans.

“Egypt’s Nile Valley irrigation system (NVIS) is an excellent example of a multiple

use-cycle system with a high global efficiency but low local efficiencies. Egypt is

interested in expanding the area irrigated by Nile River waters without reducing the

high productivity of the present irrigated areas. To accomplish this will require an

aggressive conservation program. However, directing conservation efforts toward areas

where multiple use-cycles are possible, and thus [Effective efficiency] is already quite

high, will result in little real water savings”, (Keller & Keller, 1995, p. 6).

Table 1: Available and Potential Irrigation Water Resources

Billion

m3/Annum%

Billion

m3/Annum%

Nile Water 51.7 82.59 55.5 75.2

Groundwater 5.2 8.3 11.3 15.3

Drainage Water 3.7 5.91 5 6.8

Treated Sewage Water 1.5 2.4 1.5 2.03

Rain 0.5 0.8 0.5 0.67

Total 62.6 73.8

Usage Availability

Source

2. Ground Water

Ground water is the second largest water source available for irrigation. It accounts for

8% of the total irrigation water. Groundwater-dependent agricultural activities

attributes to 11% of total irrigated agricultural production. Moreover, it is effectively

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the sole source of water in areas like Sinai, Western North Coast (Matruh) and Western

Desert and the New Valley. Table 2 shows groundwater usage and land irrigated by

groundwater in Aresh – North Sinai.

Egypt has large potentials for groundwater estimated to be 7.5 BCM in 2009

(UNSTAT Database). The volume of groundwater entering the country on an annual

basis from Sudan is estimated at 1 BCM. The main source of internal recharge is

percolation from irrigation water, and its quality depends mainly on the quality of the

irrigation water. The groundwater in the shallow Nile aquifer cannot be considered an

independent resource of water as it is renewed only by seepage loses from the Nile,

irrigation canals and drains, and deep percolation from irrigated lands. Deep

groundwater is found in large aquifers in the Western Desert. However, it is found at

great depths and is generally considered a non-renewable resource.

3. Rainfall Water

Egypt has no effective rainfall except for a narrow strip along the northern coastal area

where the average rainfall does not exceed 200 mm (about 1.5 BCM/year). This amount

of rainfall cannot be considered a reliable source of water due to its spatial and

temporal variability.

Land irrigated by rainfall water locates mainly alongside the Mediterranean shore

between Al-Salloum in the west, near the Libyan border, and Rafah in the east, along the

border with the Palestinian Territories. Besides, 251,000 feddans are irrigated in Sinai

depending on seasonal rains.

Around 150 thousand feddan in the Western North Coast irrigated by rainfall is

cultivated in cereals, legume, vegetables and fruits. The Northern coastal region

depends mainly on winter rainfall. This area is extremely vulnerable to drought and

thus supplementary irrigation is required to improve the crop productivity in this

region, Abdrabbo et al. (2012, pp. 29-33). One suggestion to secure the required

irrigation water for the region is by saving 5 BCM of the Nile water wasted in the sea

(M., 2011). For detailed explanation of water harvesting and supplemental irrigation,

see (Oweis, Hachum, & Kijne, 1999, pp. 19-26).

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Figure 1: Irrigated Land Use

Source: (El-Nahrawy, 2011)

Non-conventional Water Resources

1. Recycled Drainage Water

Annual drainage water utilized in agriculture is estimated to be 4.7 BCM in 2008/09

with impressive potentials to reach 10 BCM over a span of ten-years. Drainage water is

evenly mixed by Nile water and reused in irrigating 450 thousand feddan in North Sinai

(East Suez Canal).

2. Treated Sewage Water

Treated sewage water used in irrigation is 1.67 BCM in 2000 with estimations to reach

2.4 BCM in 2027.

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Table 2: Groundwater Usage

Drinking

Water

Irrigation

WaterField Crops Vegetables Fruits

East Aresh 403 2500 69 394 60855 31800 23046 17979

Aresh Delta 151 3000-4000 81800 20416 23210 25185

West Aresh 662 2500-3000 38000 28950 2832 3129

Usage Current Cultivated Area (feddan)

AreaWithdraw

m3/daySalinationNumber of Wells

Irrigation Water Quality and Land Productivity

It is worth noting here that the conventional definition of efficiency for a given input is

measured by the generated output. Keller and Keller (1995) demonstrate that the

classical definition of irrigation water efficiency is applicable to examining irrigation

design and management but is not precise in the case of studying water allocation.

Failure to consider the inevitable water discharge, which occurs during irrigation in

form of runoff or seepage, and the recycled drainage water leads to ill-defined measure

of efficiency. For the purpose of this study, it is appropriate to use productivity as an

approximate for efficiency.

Agricultural activities and the associated drainage network contribute to water

quality deterioration in Egypt. Covering the whole Nile Valley and Delta, the drainage

network discharges wastes into the Nile mainstream or the northern lakes and sea

coast. This irrigation misconduct affects water quality through three channels: changing

salinity level, adding chemical fertilizers and pesticides to irrigation water and

eutrophication of water bodies. ((RIGW), 1996). The various pollution loads led to

significant water quality degradation, Table 3.

Table 3: Recycled Drainage Water in the Nile Delta 2000/2001 (BCM per annum)

Salinity Level East Delta Middle Delta West Delta Delta

< 750 0.664 0.085 0.575 1.324

750-1000 0.422 0.458 0 0.88

1000-1500 0 1.416 0.067 1.483

1500-2000 0.744 0 0 0.744

2000-3000 0 0 0.416 0.416

Total 1.83 1.959 1.058 4.847 Source: Drainage Research Institute (2004)

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“In Egypt, perhaps the most critical factor in predicting, managing, and reducing

salt-affected soil is the quality of irrigation water being used (The main sources of the

salinity in the Delta soils are irrigation water, Mediterranean saline water and the high

level water table). Besides affecting crop yield and soil physical conditions, irrigation

water quality can affect fertility needs, irrigation system performance and longevity,

and how the water can be applied. Therefore, knowledge of irrigation water quality is

critical to understanding what management changes are necessary for long-term

productivity”, (Noureldeen, 2013, pp. 1-2). Table 4 provides quantitative estimations for

potential yield reductions due to increases in salinity level of irrigation water.

Table 4: Potential Yield Reduction from Saline Water

0% 10% 25% 50%

Barely 5.3 6.7 8.7 12

Wheat 4 4.9 6.4 8.7

Sugarbeet* 4.7 5.8 7.5 10

Alfalfa 1.3 2.2 3.6 5.9

Potato 1.1 1.7 2.5 3.9

Corn (grain) 1.1 1.7 2.5 3.9

Corn (silage) 1.2 2.1 3.5 5.7

Onion 0.8 1.2 1.8 2.9Dry Beans 0.7 1 1.5 2.4

Yield Reduction (%)

ECw

Crop

Updated SAM for the Egyptian Economy

A new Social Accounting Matrix (SAM) for Egypt in 2008/2009 is developed and

updated as part of this project. Data are mainly based on the most recent (Central

Agency for Public Mobilization and Statistics (CAPMAS), 2010). In addition, data for

institutional sector accounts are collected from (Ministry of Planning (MOP), 2011).

Data for detailed agricultural crops by irrigation seasons are compiled from the most

recent issues of Bulletin of Agricultural Statistics. In addition, data on agricultural cost

and return is the most recent issues of Bulletin of Agricultural Prices, Costs and Net

Returns. Data on water requirements are compiled from (The Central Agency for Public

Mobilisation and Statistics, December 2009). It is worth noting here that water

requirement refers to blue water only.

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Table 5: SAM Accounts, Egypt 2008/2009

No SAM Activity No No SAM Activity

1 Winter Wheat 19 37 Education

2 Winter Cereals 20 38 Social Services

3 Winter Sugar Beet 21 39 Arts Entertainment

4 Winter Fodders 22 40 Other Services

5 Winter Fibbers 23 41 Financial Services

6 Winter Medical Plants 24 42 Insurance

7 Winter Vegetables 25 43 Public Services

8 Summer Rice 26 44 Defence

9 Summer Other Crops 27 45 Public Safety

10 Summer Sugar Cane 28 46 Economic Affairs

11 Summer Cotton 29 47 Environmental Protection

12 Summer Fodders 30 48 Housing and Community Amenities

13 Summer Oily Crops 31 49 Health

14 Summer Medical Plants 32 50 Recreation, Culture and Religion

15 Summer Vegetables 33 51 Education

16 Nili Rice 34 52 Social Protection

17 Nili Other Crops 35 53 Non-profit Activities Serve HH

18 Nili Fodders 36 54 Subsistence HH Activities

No SAM Commodity No No SAM Factors

1 Wheat 9 1 Labour

2 Cereals 10 2 Capital

3 Rice 11 3 Winter Nile-dependent Land

4 Vegetables 12 4 Summer Nile-dependent Land

5 Fruits 13 5 Nili Nile-dependent Land

6 Coffee Tea 14 6 Year-round Nile-dependent Land

7 Other Agriculture Forestry Fishery15

8 Ores Minerals Gas 16

No SAM Factors No No SAM Factors

7 Winter Nile Water 11 15 Winter Ground Water

8 Summer Nile Water 12 16 Summer Ground Water

9 Nili Nile Water 13 17 Nili Ground Water

10 Year-round Nile Water 14 18 Year-round Ground Water

SAM Factors

Winter Groundwater-

dependent Land

Summer Groundwater-

dependent Land

Nili Groundwater-dependent

Land

Year-round Groundwater-

dependent Land

SAM Activity

Nili Oily Crops

Nili Medical Plants

Nili Vegetables

Fruits

Other Agriculture, Forestry,

Fishing

Mining

Manufacturing

Electricity gas

Water Supply

Construction

Trade

Suez Canal

Transportation

Accommodation Services

Information Communication

Real Estate

Professional Services

Administrative Services

SAM Commodity

Trade

Food Products

Other Transportable Goods

Metal machinery equipment

Construction

Financial Services

Business Services

Social Services

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Data on agricultural trade are compiled from (Ministry of Industry and Foreign

Trade & Egyptian International Trade Point (EITP), 2008-2009). It is worth mentioning

that agricultural trade data is sourced from Central Agency for Public Mobilization and

Statistics (CAPMAS).

Cross entropy method is used to balance the original SAM and then to

disaggregate the agricultural activity and commodity. Aggregates from national

accounts and supply/use tables are used to control the transaction values for the

disaggregated SAM. Final SAM includes 54 activity accounts, 16 commodity accounts

and 18 production factor accounts. Table 5 portrays the basic account in the Egyptian

SAM.

Single Country STAGE CGE Model

This study uses a comparative static variant of the single-country CGE STAGE model.4 In

this version (i.e. STAGE-WL) of the model, a CES nest is added to the production

function representing derived demand for Nile water and land as well as other sources

of irrigation water.

Production Specification

As depicted in Figure 2, production relationships for agricultural activities are specified

through five level CES function. At the top level, value added and intermediate demand

are combined using a CES aggregator. At the second level of the nest, a CES production

technology specifies the aggregate value added as a function of primary inputs demand

in each activity. The primary inputs are capital, labour and aggregate water/land for

agriculture. By maximizing profit, farmers determine the optimal supply level of crops

output according to the production technology prevailing in each activity. This per se

specifies their derived demand levels for production factors. Farmers demand a

production factor at the level that equalizes the value of its marginal product with its

wage rate in each activity.

4 STAGE model, described in detail in McDonald S. (2007), is a descendant of the USDA ERS model (Robinson, Kilkenny, & Hanson, 1990).

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For the purposes of this study, aggregate land for agriculture is composite of

irrigated land and rain-fed land. At the third level of the agricultural production

function, rain-fed land and composite irrigated land are combined through a CES

aggregator. Composite irrigated land is land irrigated by either Nile water or

groundwater.

The model is developed to segment groundwater-dependent agricultural activities

from Nile water-dependent agricultural activities. At the fourth level of the agricultural

production function, Nile land/water composite and groundwater land/water

composite are combined through a CES aggregator. This allows for specifying different

levels of substitutability between these two types of irrigated land. Both types of

irrigated land are mobile across crops subject to changes in the ratios for land rent in

each activity to the average land rent.

At the bottom level, water and land are combined according to two CES

aggregators – each for Nile water-dependent and for groundwater-dependent activities.

The greater the irrigation water quality available for specific activities, the lower is the

water price, and the higher is the land rent. The price for composite irrigated

land/water changes depending, inter alia, on the prevailing irrigation technology. The

latter is measured by factor intensity for irrigated land and water. The activities with

increasing irrigated land/water price withdraw irrigated land/water from other

activities according to the elasticity of substitution between the two types of irrigated

land: Nile water-dependent land and groundwater-dependent land. Excess irrigated

land supply pushes irrigated land rent to drop in order to clear the market. The farmers

utilize irrigated land at the level that equalizes the value of its marginal product with its

rent rate in each activity. This per se specifies the optimal level of derived demand for

irrigated land.

Three points worth highlighting here. Firstly, the model is flexible in the sense that

it allows for specifying Leontief fixed coefficient at the different levels of the water/land

production nest. Secondly, the model specifies physical supply constraints for water and

the two types of land. Demand volume transactions for both land (by thousand feddan)

and water by agricultural activities are employed as upper limits for total supply of

water and land. Also, water supply activity deals with non-agricultural uses of water.

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Figure 2: Agricultural Production Flows in STAGE-WL CGE Model

The model assumes no distribution cost of irrigation water. Under an additional

closure rule, the model sets production volumes to be fixed at their baseline levels. This

is applied at the third level of the CES production function for all agricultural activities

except ‘Other Agriculture Forestry Fishery’. This specification allows endogenously

quantifying changes in efficiency required to offset the water losses keeping agricultural

output unchanged. Under different levels of water loss, generated changes in efficiency

are measured for the land/water composite production factor.

Output

va

Labour

nLand/Water

Capital

x

Intermediate inputs Value Added

nLand nWater

nl/w

Intermediate n

gLand/Water

Land/Water

nlw/glw

gWater gLand

gl/w

Land

Rain-fed Land

irl/rfl

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Model Closure Rules

Egypt is a small country in the world market. It is, thus, plausible to fix world prices for

exports and imports. The model assumes that current account balance is fixed at its

initial benchmark level. To clear the external balance, real exchange rate is allowed to

adjust.

The model adopts investment-driven closure in the sense that saving rate adjusts

to generate the required savings to finance the baseline investment. Foreign saving is,

exceptionally, specified as exogenous.

Capital is specified to be mobile and fully employed. Labour is mobile, albeit under

employed. Water and land, for both Nile water-dependent and groundwater-dependent

activities, are fully employed, but season-specific. For the purposes of this study, water

and land supply are set to be fixed for each irrigation season. Thus, water and land are

allowed to be mobile across agricultural activities within each irrigation season but not

across different seasons.5 This specification implies that water and land would have

seasonal prices.

Simulation Scenarios

The simulation scenarios distinguish irrigation systems according to different levels of

irrigation efficiency. For agricultural activities producing the same crop, water quality

and, hence, land productivity varies according to the employed irrigation system: Nile

water-dependent versus groundwater-dependent. This paper reports four main

simulation scenarios:

1. N-Wtr Loss: Nile Water Loss

The first scenario simulates the Nile water loss in isolation, which reflects the upper

limit of potential reductions of Egypt’s share of Nile water. It assumes a 34% reduction

in Nile water supply evenly spread across irrigation seasons.

5 The elasticity of substitution between water and land are based on estimations (provided by Calzadilla et al. (2011)) for Middle-East countries which are equal to 0.06.

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2. Irrg-Eff: Irrigation Efficiency

The second scenario considers improvements of irrigation efficiency. An external shock

of 30% increase in irrigation efficiency is simulated. For better interpretation of the

determinants of the results, this scenario is decomposed into two components

according to the source of the simulated irrigation efficiency: Nile water-dependent

irrigation (Nile Irrg-Eff) and groundwater-dependent irrigation (Ground Irrg-Eff).

The point to mention here is that the model does not specify the underlying source

for funding the simulated improvements in irrigation efficiency. That is to say,

government expenditure on R & D, for example, is not explicitly specified by the model.

3. N-Wtr Loss & Irrg-Eff: Nile Water Loss & Irrigation Efficiency

The third scenario combines the simulated 34% reduction in Nile water with the 30%

improvement in irrigation efficiency. This comprehensive scenario provides

quantitative assessments for the impact of quality enhancements of different types of

irrigation water under water scarcity conditions.

4. X-Wtr Gain: Non-conventional Water Gain

The last scenario assumes ceteris paribus more non-conventional water resources are

secured to compensate the simulated reductions in Nile water. It implicitly represents

the case in which Nile water loss is compensated by increases in recycled drainage

water and treated sewage water. As discussed earlier, the potential average increase in

these two water resources is estimated to be 95%.6 Due to lack of data, an increase in

ground water is simulated as a proxy for potential increases in all other non-

conventional water resources. Ground water used in irrigation is roughly equivalent to

both recycled drainage and treated sewage water combined, see

Table 1. This scenario thus represents a 95% increase in ground water supply across

different irrigation seasons.

6 This is weighted according to their current shares of total irrigation water.

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Table 6: Macroeconomic Indicators (Real percentage change)

Nile Irrg-Eff Ground Irrg-Eff Irrg-Eff

private consumption -0.30 0.53 0.03 0.55 0.26 0.02

government

consumption0.03 -0.06 0.00 -0.06 -0.03 0.00

investment

consumption-0.13 0.22 0.01 0.23 0.10 0.02

absorption -0.23 0.41 0.02 0.43 0.20 0.02

import demand -0.16 0.11 0.00 0.10 -0.07 0.04

export supply -0.25 0.23 0.00 0.24 -0.03 0.06

GDP from expenditure -0.26 0.45 0.02 0.47 0.22 0.02

total domestic

production -0.32 0.56 0.03 0.59 0.27 0.02

total intermediate

inputs -0.42 0.72 0.04 0.75 0.34 0.02

Efficiecny N-Wtr Loss &

Irrg-EffN-Wtr Loss X-Wtr Gain

Source: model results.

Simulation Results

Macro-economic Impacts

At the economy-wide level, slight negative impact is reported under the N-Wtr Loss

scenario, Table 6. The simulated irrigation efficiency generates around 0.5% increases

in GDP and total absorption. Potential increases in non-traditional water resources

induce trivial positive economy-wide impacts.

The reported positive effects generated under the Irrg-Eff scenario imply that the

simulated 30% improvement in irrigation efficiency is virtually sufficient to offset the

potential 34% loss in Nile water supply. The results are primarily driven by the

simulated enhancement in Nile water-dependent irrigation efficiency. This is attributed

to the major importance of the Nile water-land for agriculture as a whole and irrigated

agricultural in particular. Nile water/land accounts for virtually 15% of total

agricultural value added and 90% of total irrigated agriculture. Ground water and land

irrigated by ground water have small shares in total agricultural value added (less than

2%) and in total irrigated agriculture (8%).

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Sector-specific Impacts

At the sectoral level, reductions in Nile water availability have noticeable adverse

impacts on summer agricultural production, Figure 3. This is particularly the case for

rice, other crops and sugar cane. Other sectors expand (e.g. winter and summer

vegetables) under the N-Wtr Loss scenario. Improving Nile water-dependent irrigation

efficiency generates positive effects for sectors like winter cereals and summer other

crops whereas all seasonal vegetables sectors shrink. The simulated increases in non-

conventional water resources boost the fruits sector.

Rice is of a great importance to the Egyptian economy. This sector solely

contributes more than 6 percent of total agricultural production. Furthermore, it is one

of the main exporting sectors. Rice is cultivated mainly in the summer season with only

0.4% of total rice output grows in the Nili season. This water-intensive crop solely

consumes more than 30% of annual irrigation Nile water and more than half of summer

Nile water.

The N-Wtr Loss scenario has a strong negative impact (-20%) on rice exports.

Under the comprehensive N-Wtr Loss & Irrg-Eff scenario, rice exports drop by only 4%.

Improving Nile water-dependent irrigation efficiency boosts rice output (by 4% in the

summer and 6% in the Nili seasons) without increasing irrigation water requirements.

Furthermore, combining irrigation efficiency with Nile water loss mitigates the negative

impacts on rice exports, Table 7. Doubling all other non-conventional water resources

has negligible impact on summer rice. From this perspective, more ambitious plan to

boost irrigation efficiency for this sector is recommended in order to overweight any

potential shrinkage in rice output and exports.

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Figure 3: Domestic Agricultural Production (Percentage change)

Vegetables comprise 23% of agricultural output evenly circulated over the winter

and summer seasons. It roughly consumes 6% of Nile water used in each of the

irrigation seasons. Interestingly, winter and summer vegetables output rise under the

N-Wtr Loss scenario. According to the factor market clearing conditions, water and land

are allowed to move across activities within each irrigation season, but not across

seasons. Reduction in water availability pushes the agricultural structure to be more

concentrated in less hydro-water crops. As such, the winter and summer vegetable

sectors attract excess Nile water and land leading to expansions of 3-4%.

Improving Nile water-dependent irrigation efficiency adversely affects the

vegetables sectors in all irrigation seasons. These negative impacts are worse under the

comprehensive irrigation efficiency scenario.

Clearly, interpreting these findings requires more detailed analyses for production

technology prevailing in the baseline scenario as well as changes in factor prices and

rents under the simulation scenarios. The next sub-section addresses these effects.

-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

50.0

W. W

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t

W. C

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W. S

uga

r B

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W. F

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s

W. F

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W. M

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W. V

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able

s

S. R

ice

S. O

ther

Cro

ps

S. S

uga

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ane

S. C

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on

S. F

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s

S. O

ily

Cro

ps

S. M

edic

al P

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ts

S. V

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able

s

N. R

ice

N. O

ther

Cro

ps

N. F

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Cro

ps

N. M

edic

al P

lan

ts

N. V

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able

s

Fru

its

Oth

er a

gri

N-Wtr Loss

Irrg-Eff

N-Wtr Loss &Irrg-Eff

X-Wtr Gain

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Table 7: Commodity Exports (Percentage change)

Nile Irrg-Eff Ground Irrg-Eff Irrg-Eff

Wheat -3.95 16.87 1.22 18.16 13.70 0.19

Cereals -7.18 44.42 1.74 46.82 36.19 0.00

Rice -19.46 19.78 0.35 20.16 -3.58 -0.05

Vegetables -3.42 8.81 0.39 9.20 5.46 0.01

Fruits -6.57 -1.09 -0.06 -1.14 -7.62 7.99

Coffee Tea -6.26 10.12 0.60 10.71 4.03 0.03

minerals gas 0.56 -0.82 -0.05 -0.86 -0.30 -0.16

Food products -0.20 0.46 0.02 0.47 0.32 -0.11

Other transportable

goods-0.31 0.60 0.03 0.62 0.35 -0.06

Metal machinery -0.41 0.75 0.04 0.78 0.42 -0.04

Construction 0.19 -0.29 -0.02 -0.31 -0.11 -0.05

Trade 0.33 -0.49 -0.03 -0.52 -0.18 -0.11

Financial services 0.25 -0.36 -0.02 -0.38 -0.11 -0.08

Business services 0.33 -0.48 -0.03 -0.51 -0.17 -0.10

Social services 0.44 -0.72 -0.04 -0.75 -0.31 -0.09

N-Wtr Loss &

Irrg-EffN-Wtr Loss

Efficiency

X-Wtr Gain

Source: model results.

Water and Irrigated Land Prices

Under the Nile Irrg-Eff scenario, Nile water and Nile water-dependent land rents drop

as they become more efficient.7 The expanding activities (e.g. winter cereals, summer

rice, summer other crops and cotton) withdraw the mobile factors (i.e. labour, capital,

year-round Nile water and year-round Nile-water dependent land) from other activities

and push their prices and incomes to raise, Table 8.8

7

Increasing production factor productivity implies higher effective factor endowment, which consequently affects factor demand and price. Within this multi-sector modelling framework, changes in productivity of specific factors/sectors affect demand and price for other factors/sectors through different transmission channels. The higher the factor productivity, the lower is its effective price. Consequently, producers substitute other factors/intermediate inputs by the cheaper factor. Changes in factor productivity entails also lower production cost and, hence, lower price. Consumers gain and their demand increases, which consequently boosts production. 8 In this general equilibrium framework, the causal relationship between factor demand and factor rents works in two directions. Excess demand for a production factor pushes its average rent to rise in order to clear the market. Simultaneously, producers substitute this factor, which became relatively more expensive, for other factors according the elasticity of substitution at the fourth level of the CES production function.

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Table 8: Income Factors (Percentage change)

Nile Irrg-Eff Ground Irrg-Eff Irrg-Eff

labour -0.42 0.78 0.04 0.81 0.41 0.03

capital -0.40 0.72 0.04 0.75 0.37 0.03

fRfLnd 7.60 -12.18 -0.68 -12.74 -6.15 -0.16

winter Nile land -1.35 -2.52 -0.77 -3.23 -4.51 -0.19

summer Nile land -2.12 -0.65 -0.45 -1.07 -3.21 -0.11

nili Nile land -4.13 -0.73 -0.51 -1.22 -5.39 -0.10

Nile land year-round

crops-3.78 0.13 0.01 0.14 -3.57 4.25

winter Nile water 9.91 -2.27 -0.67 -2.88 6.89 -0.17

summer Nile water 6.12 -2.31 -0.30 -2.57 3.27 -0.05

nili Nile water 4.25 1.40 -0.28 1.12 5.49 -0.06

Nile water year-round

crops6.75 0.13 0.01 0.14 6.99 4.25

winter Ground land 4.17 -10.95 8.27 -3.55 0.54 3.89

summer Ground land 4.76 -8.98 8.58 -1.14 3.55 4.73

nili Ground land 5.27 -8.85 8.74 -0.89 4.21 2.39

Ground land year-

round crops-3.78 0.13 0.01 0.14 -3.57 4.25

winter Ground water 4.20 -11.57 8.22 -4.26 -0.17 -16.65

summer Ground

water3.60 -8.33 8.51 -0.49 3.14 -15.10

nili Ground water 1.79 -7.61 8.63 0.40 2.45 -17.34

Ground water year-

round crops-3.78 0.13 0.01 0.14 -3.57 -11.78

Ground water-depenent Factors

N-Wtr LossN-Wtr Loss &

Irrg-Eff

EfficiencyX-Wtr Gain

Nile water-depenent Factors

Source: model results.

Table 10 and Table 11 present factor intensity and factor allocation respectively.

The former reflects the prevailing technology in different activities while the latter

represents factor usage across activities. These two indicators are essential for

understanding any potential change in factor rents and the consequent changes in

factor allocation after a policy shock.

Among the agricultural sectors, vegetables have the lowest Nile water/land

intensity ratios. Nile water/land intensity ratios for the seasonal vegetables sectors

range 6-12%. As such, the vegetables sectors are relatively less Nile water/land-

intensive compared to other sectors. Besides, the vegetables sectors occupy small

shares of total Nile-water (6.3%) and Nile-land (21%).

The experienced increases in factor prices under the Nile-Irrg Eff scenario entail

higher production costs for sectors that are relatively more dependent on these factors.

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As such, the seasonal vegetables sectors experience increasing production cost. Hence,

these explain the reported shrinkages.

Conclusions and Discussion

The simulation results suggest that Egypt should be able to manage the potential

reductions in the supply for Nile water with more efficient irrigation practice that

secures higher productivity (30%) for Nile water, groundwater and irrigated land. The

results however suggests more ambitious plan to boost irrigation efficiency for summer

rice in order to overweight any potential shrinkages in its output and exports.

Furthermore, the findings show that even doubling all non-conventional water

resources is not sufficient to compensate the potential adverse impacts of Nile water

losses. This highlights the critical importance of irrigation efficiency for the Egyptian

economy.

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Table 9: Domestic Agricultural Production (Percentage change)

Nile Irrg-Eff Ground Irrg-Eff Irrg-Eff

Winter Wheat -1.03 3.64 0.28 3.90 2.90 0.04

Winter Cereals -3.72 20.25 0.87 21.26 16.66 0.00

Winter Sugar Beet -0.30 8.84 0.06 8.90 8.79 0.01

Winter Fodders -3.87 3.28 0.10 3.38 -0.54 -0.04

Winter Fibbers -0.92 15.31 0.14 15.48 14.36 -0.01

Winter Medical

Plants2.02 9.81 0.11 9.93 12.05 -0.07

Winter Vegetables 3.78 -5.37 -0.08 -5.45 -1.82 0.00

Summer Rice -3.13 3.55 0.03 3.59 -0.48 0.00

Summer Other

Crops-6.51 11.72 0.31 12.03 5.09 0.11

Summer Sugar Cane -14.70 3.25 -0.27 2.98 -11.66 -0.11

Summer Cotton 2.01 3.72 -0.32 3.42 5.45 -0.12

Summer Fodders 1.27 4.72 1.46 6.10 7.46 0.63

Summer Oily Crops 1.14 5.86 0.40 6.23 7.69 -0.15

Summer Medical

Plants-1.98 10.85 -0.21 10.64 8.52 -0.09

Summer Vegetables 3.08 -0.96 -0.07 -1.04 2.15 -0.02

Nili Rice 31.73 -4.02 10.93 5.90 37.78 -0.96

Nili Other Crops -8.92 9.46 1.26 10.74 1.11 0.29

Nili Fodders 7.05 3.53 2.77 6.16 13.45 -0.11

Nili Oily Crops 3.99 22.63 2.32 25.27 30.66 -0.25

Nili Medical Plants -23.93 16.95 -0.14 16.81 -11.09 -0.08

Nili Vegetables 0.83 -0.98 0.49 -0.54 0.45 0.02

Fruits -3.94 -0.38 -0.02 -0.40 -4.28 4.64

Other agri -0.48 0.84 0.04 0.88 0.43 0.02

N-Wtr LossN-Wtr Loss &

Irrg-Eff

EfficiencyX-Wtr Gain

Source: model results.

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Table 10: Factor Intensity by Agricultural Activity (Percent)

Labour Capital Nile-land Nile-waterGround-

land

Ground-

water

Rainfed-

landTotal

Winter Wheat 13.8 56.4 20.0 3.4 1.8 0.2 4.5 100.0Winter Cereals 22.2 29.8 34.6 4.6 1.3 0.0 7.5 100.0Winter Sugar

Beet12.3 64.2 16.9 2.8 0.0 0.0 3.8 100.0

Winter Fodders 2.5 83.7 6.0 5.1 0.4 0.0 2.2 100.0Winter Fibbers 14.4 59.0 18.4 3.8 0.1 0.0 4.3 100.0Winter Medical

Plants10.2 68.7 15.3 2.2 0.2 0.0 3.4 100.0

Winter

Vegetables7.7 84.1 5.8 0.8 0.4 0.1 1.3 100.0

Summer Rice 13.8 54.1 6.1 20.6 0.1 0.0 5.2 100.0Summer Other

Crops23.1 47.0 17.0 7.4 0.6 0.1 4.7 100.0

Summer Sugar

Cane11.4 70.1 2.3 13.1 0.1 0.0 3.1 100.0

Summer Cotton 24.7 59.0 10.9 2.7 0.0 0.0 2.6 100.0

Summer Fodders 4.8 77.8 9.7 2.7 2.2 0.4 2.4 100.0

Summer Oily

Crops15.1 62.5 15.6 2.4 1.0 0.0 3.4 100.0

Summer Medical

Plants12.1 64.6 14.6 5.0 0.0 0.0 3.8 100.0

Summer

Vegetables11.4 74.3 10.4 1.3 0.4 0.1 2.2 100.0

Nili Rice 11.4 54.3 13.4 0.5 17.6 0.2 2.7 100.0Nili Other Crops 23.0 47.2 12.9 9.9 2.3 0.2 4.4 100.0Nili Fodders 5.5 76.9 10.9 0.0 4.5 0.1 2.1 100.0Nili Oily Crops 18.4 39.7 30.4 1.8 3.6 0.0 6.1 100.0Nili Medical

Plants11.8 56.4 5.3 21.2 0.0 0.0 5.3 100.0

Nili Vegetables 11.4 73.6 8.5 2.9 1.3 0.1 2.2 100.0Fruits 14.4 63.2 9.5 4.7 4.8 3.4 0.0 100.0

Other agri

forestry fishing58.0 42.0 0.0 0.0 0.0 0.0 0.0 100.0

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Table 11: Factor Shares in Agricultural Value Added (Percent)

Labour Capital Nile-landNile-

water

Ground-

land

Ground-

water

Rainfed-

land

Winter Wheat 12.9 12.6 29.8 10.7 27.2 9.7 25.2Winter Cereals 0.7 0.2 1.8 0.5 0.7 0.0 1.4Winter Sugar Beet 1.4 1.8 3.1 1.1 0.1 0.0 2.6Winter Fodders 2.5 20.1 9.7 17.3 7.4 2.3 13.1Winter Fibbers 0.1 0.1 0.2 0.1 0.0 0.0 0.1Winter Medical

Plants0.2 0.3 0.4 0.1 0.1 0.0 0.3

Winter Vegetables 5.9 15.5 7.1 2.0 5.2 2.4 5.8

Summer Rice 6.2 5.8 4.4 30.7 0.9 0.0 14.0

Summer Other

Crops11.2 5.5 13.3 12.1 5.2 2.6 13.8

Summer Sugar Cane 2.2 3.3 0.7 8.5 0.3 0.0 3.6

Summer Cotton 4.0 2.3 2.8 1.5 0.0 0.0 2.5Summer Fodders 0.7 2.6 2.2 1.3 5.2 3.0 2.0

Summer Oily Crops 1.3 1.2 2.1 0.7 1.3 0.1 1.7

Summer Medical

Plants0.1 0.1 0.1 0.1 0.0 0.0 0.1

Summer Vegetables 8.5 13.3 12.4 3.2 5.0 2.1 10.0

Nili Rice 0.0 0.0 0.0 0.0 0.6 0.0 0.0Nili Other Crops 1.8 0.9 1.6 2.5 2.9 0.9 2.0Nili Fodders 0.1 0.3 0.3 0.0 1.2 0.1 0.2Nili Oily Crops 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Nili Medical Plants 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Nili Vegetables 1.3 2.0 1.6 1.1 2.4 0.5 1.5

Fruits 6.2 6.5 6.5 6.6 34.1 76.2 0.0

Other agri forestry

fishing32.8 5.7 0.0 0.0 0.0 0.0 0.0

Agr. Value Added 100.0 100.0 100.0 100.0 100.0 100.0 100.0